Hewlett-Packard net income falls 62%

Sales, profit excluding charges top expectations

SAN FRANCISCO (MarketWatch) -- Hewlett-Packard Co. late Thursday reported fiscal fourth-quarter profit fell 62% from a year ago, as the technology giant recorded more than $1 billion in restructuring charges.

Excluding those costs, H-P's profit and revenue topped expectations on strong sales of its PCs, servers and storage gear. The company also issued a profit forecast for the current quarter that exceeded analysts' estimates, sending its shares up more than 5.5%, to $30.60, in late trading.

H-P
HPQ, -2.35%
said it earned $416 million, or 14 cents a share, for the three months ended Oct. 31, compared with $1.1 billion or 37 cents a share a year ago. Excluding $1.57 billion in restructuring charges and other one-time items, H-P said it earned 51 cents a share.

On that basis, the company beat the estimates of analysts surveyed by Thomson First Call, which forecast a profit of 46 cents a share.

Sales rose 7% to $22.9 billion, slightly topping analysts' views, driven by a 10% rise in sales of its high-end storage and servers.

Shaw Wu, an analyst with American Technology Research, said that H-P "put up a strong quarter," but that the kind of earnings raises concerns about profitability.

"That was still a lot of charges for one quarter," Wu said, adding that there will still be questions about the earnings performance of areas such as H-P's vaunted imaging and printing group.

Printing and imaging accounted for $6.8 billion in revenue, up 4% from a year ago, but the division's operating profit fell to $896 million, from $1.1 billion, according to H-P. "That's not necessarily a good trend," Wu pointed out.

On a conference call, Chief Executive Mark Hurd said the printing division's operating margins "were within our guidelines" of 13% to 15% of the division's revenue, and that the company is focusing on printer-unit growth and a driver of future increases in supply sales.

"We're not trying to be the price leader in the [printing] marketplace," Hurd added. "We have certain segments that are high consumption segments that we target. We think we know what the premium should be."

H-P said consumer printer shipments grew 6%, and that commercial sales increased by 16% over a year ago.

Hurd was still upbeat about H-P's performance, but said that "there is still more work ahead of us." The company is in the early stages of a restructuring plan that will shed more than 15,000 jobs over 18 months and save H-P close to $2 billion annually.

Investors have been bullish on H-P's shares this year as Hurd has slashed operating costs, cut prices and restructured its personal-computer unit to better compete against rivals like Dell Inc.
DELL
and International Business Machines Corp.
IBM, +0.70%

The efforts and the stability Hurd has brought have given investors more confidence about H-P's stock, making H-P the best-performing stock in the Dow Jones Industrial Average
DJIA, +0.72%
in 2005. See full story.

Among its other individual business areas, personal systems sales, which include PCs, jumped 9%, to $7.1 billion, and sales of corporate servers and storage gear climbed 10% to $4.47 billion.

For the future, H-P expects to report a first-quarter profit between 46 cents and 48 cents a share, excluding stock-based compensation charges that will cost between 3 cents and 4 cents a share. Wall Street analysts had pegged H-P's first-quarter earnings at 44 cents a share.

The company expects first-quarter revenue to be in a range of $22.3 billion to $22.6 billion, while analysts had forecast sales of $22.57 billion.

For its full year, H-P estimates it will earn between $1.88 to $1.95 a share, excluding 13 cents a share for stock-based compensation. H-P expects to post full-year sales of $89.5 billion to $91 billion.

Analysts had estimated H-P would earn $1.82 a share on $91.1 billion in revenue.

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